The biggest news of the week, as far as the ASX goes, quite rightly has something to do with the biggest company on our bourse – BHP (ASX:BHP), which is also the world’s largest miner.
Over the ANZAC day break, we got international news that BHP is considering an A$60B deal with Anglo American to buy the latter out. This would create a bona fide supermajor mining player, but clearly, not everybody was on board.
At close on Friday, shares in BHP were down over -4% to hover around $43.30/sh. While ASX futures were already red following a poor night of US economic data – more on that in a second – a steep drop in BHP’s share price brought down the entire Australian share market.
Some $554M worth of shares were traded in BHP on Friday, with share turnover 4M units higher than the four week average at 12.7M shares in BHP swapping hands. So what’s the problem?
The first thing to note is that BHP clarified on Friday the deal is basically a proposal. There is also the question of whether or not competition regulators would allow the deal to happen, which personally, I find hard to believe.
Anglo American has stakes in projects all across Australia, and much like the proposed and now-abandoned Woodside-Santos merger of not-that-long-ago, there’s a few obstacles. Or perhaps a more correct way to put it is ‘concerns’ – and that’s not even considering regulator hostility.
Consider that BHP profits hit a decade low earlier this year, and the company slashed its dividend. We’ve since learned our biggest miner is on the whole doing okay – a multibillion Nickel West writedown notwithstanding, about which we learn BHP’s ultimate decision around early FY25 – but a lot of positive sentiment is riding on higher copper prices, up nearly +15% MoM.
If I had to guess, I would imagine BHP shareholders are asking themselves: is this the right thing to do right now? In fairness, BHP has reiterated it’s a proposed deal with no guarantee. One to watch – but if it goes through, expect it to be the biggest ASX deal of the year.
Worth noting is that we also got Oz inflation data higher than expected this week at +3.6%, but, the market didn’t really pay too much attention either way.
More disappointing US data
Trying not to be too much of a doomer, I’ll preface this next section by noting we get fresh monthly US PCE inflation data this evening Australian time, and if that’s better than the market expects, we could see the Friday scaries we’ve witnessed today halfway forgotten by Monday.
There’s also the consideration that we’ve seen more than one Mag7 tech company drop earnings on the US market this week, and on the whole, things are more or less steady for the big tech sector basically in control of US market sentiment right now.
Google’s doing pretty well, and so is Meta, although Meta got slammed when it said its costs would raise in AI (people are probably wondering where the hell the Metaverse went.) Tesla was mixed, but the market liked hearing Tesla’s going to drop prices further to compete with Chinese companies like BYD, with which Tesla is currently engaged in a price war (at the same time Biden ratchets up trade war tensions, in a move which feels a little bit Trumpish.)
So what’s this “disappointing US data” I speak of?
In short: softer than expected GDP growth, as well as quarterly PCE data higher than expected (opposed to the monthly PCE data we get this evening.) Depending on where you get your information, analyst expectations for US Q1 GDP growth ranged anywhere from around +2.5% QoQ to +3% QoQ. Instead, we got a read of 1.6%. Meanwhile, Q1 PCE inflation increased by an annualised 3.7%.
Differing opinions
The finance world was unanimous in noting one thing – Q1 GDP was going down, while Q1 PCE inflation was going up. Long story short: interest rates more likely to be higher for longer. Cue a huge blow to morale in the US overnight (and thus, the world.)
This was enough to spook ASX futures traders, but as at 4.20pm AEDT, US market futures are all in the green per CNBC on Friday arvo Australia time (except for the Russell Smallcap index.)
But what to make of the GDP data varies depending on who you ask.
Global X ETF’s head of investment strategy Scott Helfstein said the growth numbers were less concerning than inflation – noting we can expect a revised GDP read in May, next month. Despite caution, however, Helfstein wasn’t entirely bearish.
“There is a different story on year-over-year basis where GDP growth was basically in line at 3.0%. This suggests that the economy remains relatively healthy, even thought that has not been the headline,” Helfstein said.
“We should focus on this metric,” he added.
So what should we expect for Monday? That’s easy: watch what happens in the US tonight. And then make sure commodities don’t do anything crazy all weekend. And hope for world peace, but not too much peace all at once – actually, don’t look away from your phone at any moment. Or just let me do that for you, whatever.
See you Week 18.
Headlines that caught my eye this week:
Australian Economy
- Australian inflation comes in higher than expected at +3.6%
- Australian PPI prices increase 0.9%
- Rabobank analyst Ben Picton has warned the RBA may not cut in 2024 per ANZ call
International Economy
- Higher-than-expected inflation and lower-than-expected US GDP growth hurt sentiment
- Mid-late April US jobless claims below expectations at 207K vs forecasts of 214K
- Bank of Japan holds interest rates on hold, sending bond yields lower
Australian Equities
- BHP sinks over -4% on Friday after reports of proposed Anglo American buyout surface
- Australian Strategic Materials looking at possible A$1.5B funding pool for Dubbo REE play
- Relatively quiet Base Resources suddenly spikes on US Energy Fuels buyout offer
International Equities (Mag7 Special)
- Meta sinks despite fairly positive fundamentals on AI cost hike warning
- Google owner Alphabet issues its first dividend on strong earnings
- Microsoft profits jump 20% YoY to US$21.9B
- Despite midweek positive rebound, Tesla still among worst S&P500 stocks YTD